Rising wages, rising costs and rising inflation are informing the latest IoD economic sentiment survey but the good news is the rate of decline is steadying.
The IoD’s Directors’ Economic Confidence Index fell from -1 in September 2021, to -6 in October 2021. Although this was a further fall in confidence from the high of +27 recorded in June, the rate of decline is steadying. In contrast, directors’ confidence in the prospects for their own organisation, which had also declined from June (+50) to September (+35), returned to higher levels in October (+46). Expectations of rising wages in the next 12 months continues to be high. In October 62 percent thought wages would increase in the next 12 months, compared to 61 percent in September and 52 percent in June. Correspondingly, the proportion of directors who think costs will rise also remains high at 77 percent (75 percent in September).
Kitty Ussher, Chief Economist at the Institute of Directors, said: “Directors are still nervous about the state of the UK macroeconomy, in contrast to the exuberance of the early summer, with October’s data continuing to show more people pessimistic than optimistic about prospects for the wider UK economy in the year ahead. Nearly nine in ten business leaders expect inflation to be higher than the Bank of England’s target in 2022 and wage pressures are also being felt acutely.
“However, within that, there are encouraging signs that business leaders are feeling more positive about prospects for their own firms than last month, with correspondingly steady increases in investment and employment intentions. Whether this is sufficient to fulfil the OBR’s prediction of a massive 16 percent increase in business investment across the economy next year is, however, far from clear.”
The IoD’s Economic Confidence Index measures the net positive answers from its members to the question ‘How optimistic are you about the wider UK economy over the next 12 months?’ on a five-point scale from ‘very optimistic’ to ‘very pessimistic’.